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Small Businesses Face Uphill Year Without Access to Credit Union Loans

Small Businesses Face Uphill Year Without Access to Credit Union Loans By Gina Ragusa
Published January 9, 2013
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Key findings from a mid-2012 survey by PNC Bank point to another year of soft profits for small businesses due to a variety of factors, including continued uncertainty surrounding the economy.

The October 2012 survey found that although a growing number of business owners are more optimistic today about increased profits and sales, the majority are still cautious about what is in store for 2013. Important revelations include:

  • Six out of 10 U.S. small to medium sized companies are looking to reduce overhead within labor forces over the next six months.
  • Approximately 50% of survey respondents were pessimistic about U.S. economy prospects in the next six months (down from 71% last spring).
  • Four in 10 business owners expect sales to increase in the coming months.
  • Approximately 52% have no plans for capital spending anytime soon.
  • Only 19% plan to pursue a new loan or line of credit over the next six months.
  • Prices will remain the same as only 22% plan to make any increases as few believe market conditions will permit a price rise.

One telltale indicator of how business owners are feeling was the question about the general economy. An astounding 96% believe the economy has not shown improvement with 49% saying recovery is more than a year away.

Business Loan Restrictions Have Owners in a Stranglehold

Without access to capital, many business owners report feeling helpless. For example, when Olya Losina told Forbes about her dream to open an art school her vision was promptly rebuffed when she sought a business loan from her bank. Her personal credit wasn’t squeaky clean and in this new world of bank regulation, stories like Losina’s are more common than not.

James Schrager, a professor of entrepreneurship at the University of Chicago Booth School of Business told News Factor Business Report that depressed lending practices from 2012 may continue to haunt the industry well into 2013.

While bank business loans may still be tough to obtain, credit unions continue to be a favorite for many small business owners. John Arensmeyer, CEO and founder of Small Business Majority is hoping S. 2231 (legislation that would increase the credit union member business lending cap from 12.25% of assets to 27.5% for well-capitalized credit unions) passes sooner than later but says, "Sadly, I don't think we're going to increase our access to capital overnight."

Credit Union Loans Continue to be a Small Business Owner Beacon

Credit unions throughout the country share stories about how a member business loan rescued a local company when banks did nothing to help.

When Thai Orchid Restaurant, a longtime, celebrated local establishment sought to finance a building purchase, the owners were greeted with a line of bank loan denials.

“The restaurant owners pursued many options to finance the purchase of the building and additional funds to remodel the building in order to modify it into a restaurant,” explains Misti Rooney, Community Relations Officer at Advantis Credit Union ($930 million, Portland, OR). “The restaurant owners were denied by several national lenders, and even applied with private equity groups trying to find private funding. Finally they were approved by a national lender and completed the necessary paperwork for the loan. In the meantime they proceeded with their plans and hired architects, a general contractor and city permits to remodel the building.”

Rooney said that as the date neared for the loan closing, the bank backed out of their approval for financing, leaving the owners of Thai Orchid Restaurant out in the cold. “The restaurant owners contacted Advantis and the credit union worked quickly to approve the loan and fund it before their purchase and sale agreement expired on the building. From the application date to the funding date was exactly 30 days.”

“The restaurant owners know that without Advantis’ help and loan approval, they would have lost the new property since the purchase and sale agreement could not be extended and the deadline was quickly approaching,” Rooney says. “Now thanks to Advantis, as soon as the remodel process is complete, Thai Orchid Restaurant can move into their new location down the street and continue to serve Thai food to the Vancouver, Oregon community.”

Stories like Thai Orchard’s are commonplace for many small businesses. Holly Bensen, Business Banking Program Manager at Affinity Plus Federal Credit Union ($1.3 billion, St. Paul, MN) recalls an instance where a member wanted to open a business credit card but was kicked to the curb by banks.

“William owns Computer Servicing Company and he was our very first business Visa card holder,” she tells Credit Unions Online. “He has been a member personally for 12 years and a business member for three. He has some explainable ‘dings’ on his credit report so the banks didn't want to assist him. He had been using his Affinity Plus personal Visa and trying to keep things separate without having a true business card. We were able to assist him with a business Visa and he couldn't be happier.”

Lori Daniels Lending Manager from Genisys Credit Union ($1.4 billion, Auburn Hills, MI) says small business owners should visit Genisys as the credit union is nowhere near its cap and has plenty of money to lend. “Mid early last year Genisys began expanding its business lending solutions and has successfully helped many small businesses.”

Daniels explains that loan assistance has expanded beyond current members to bringing in new business as well. “Through their positive experiences, several members have referred businesses to the credit union.”

Many credit unions have money to lend. Find a credit union and ask about business lending solutions for your company.

 

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